Cotton thread classified as cotton yarn under sales tax entry, leaving the turnover outside tax.

Cotton thread sold as spindles and thread balls was treated as falling within the entry for "cotton yarn" under the Tamil Nadu General Sales Tax Act, so the turnover was not liable to tax. The decisive factor was the nature and use of the goods sold: although the yarn had been bleached and twisted, it remained commercially identifiable as cotton yarn, and was found suitable for use in textile or ply manufacture. Applying a narrow construction of the taxing entry, the goods were held to fall outside the taxable net.

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Issues: Whether cotton thread sold by the assessee fell within serial No. 3 of the Second Schedule to the Tamil Nadu General Sales Tax Act as "cotton yarn" and was therefore not liable to tax.

Analysis: The entry in the Second Schedule used only the expression "cotton yarn". The goods had been purchased as cotton yarn, bleached, twisted and sold as spindles of cotton thread or thread balls for packing. The decisive consideration was the nature and use of the product sold, and the Tribunal found that the cotton thread sold by the assessee would be used to make textile or ply. On that basis, even applying a narrow construction of the entry, the turnover was outside the taxable net.

Conclusion: Cotton thread sold by the assessee was treated as falling within the entry for cotton yarn, and the turnover was not liable to tax.

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